Taylor Capital Group: Attractive Pick For Value Investors

Earnings momentum for Taylor Capital Group Inc. (NASDAQ:TAYC) has moved sharply higher since this regional bank reported solid third quarter results in mid October, which included an earnings surprise of more than 80%. The company became a Zacks #1 Rank (Strong Buy) on October 20 and hit its 52 week high on October 26. Moreover, a P/B multiple of just 1.4 makes this stock an attractive pick for value investors.

Remarkable Q3

On October 17, Taylor Capital Group reported third quarter earnings of 60 cents per share, outpacing the Zacks Consensus Estimate by 81.8% and year-ago earnings by 71.4%. This marked the fourth positive earnings surprise in the last 5 quarters.

Net interest income grew 7.1% year over year to $37.2 million on the back of a 28.5% drop in total interest expenses. Non-interest income jumped significantly to $47.3 million as a result of a huge surge in mortgage banking revenue. Non-interest expenses rose 98.6% to $55.9 million. The provision for loan losses went down significantly from the year-ago quarter to $0.9 million.

Asset quality continued to improve during the quarter. As of September 30, 2012, nonperforming assets fell 39.7% year over year to $91.0 million. Likewise, the allowance for loan losses was 2.58% of total loans, down 110 basis points from last year.

Earnings Estimates Surging

Over the past 30 days, the Zacks Consensus Estimate for 2012 jumped 10.4% to $1.70 per share as two of four estimates moved higher. For 2013, the Zacks Consensus Estimate advanced 17.4% to $1.89 over the same time frame as two out of four estimates again moved north.

The estimates reflect year-over-year improvements of about 1233.3% for 2012 and 11.0% for 2013.

Attractive Valuation

Along with a low P/B multiple, Taylor Capital trades at a forward P/E ratio of just 9.6 (a P/E ratio under 15.0 and a P/B ratio below 3.0 generally indicate value). Also, the company has a trailing 12-month ROE of 15.5%, compared with the peer group average of 8.8%. This implies that the company reinvests its earnings more efficiently than its industry peers.

Taylor Capital Group operates as the holding company for Cole Taylor Bank. Taylor Capital offers a wide range of retail banking, asset-based lending and residential mortgage banking services to middle-market companies with annual revenues of $5-$250 million. The company has a market cap of about $469.7 million. Macatawa Bank Corp. (NASDAQ:MCBC) and Firstbank Corporation (NASDAQ:FBMI) are the other Zacks #1 Rank (Strong Buy) stocks in the same industry.

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